Grid:

How powerful is the consumer in deciding the future of the electric power sector in the United States? During today's OnPoint, Linda Blair, chief business officer and executive vice president of ITC Holdings, discusses new research focused on the future of grid investments and explains why she believes there is an economic case for funding electric power advancements. She also addresses the failed transaction between ITC and Entergy over the sale of high-voltage transmission lines.

Transcript

Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Linda Blair, chief business officer and executive vice president of ITC Holdings. Linda, thank you so much for coming on the show.

Linda Blair: Thank you for having me. A pleasure to be here, Monica.

Monica Trauzzi: Linda, we're at the cusp of an era where consumers are having a larger voice in the future of the electric power sector, and ITC has conducted a fresh round of research and public opinion polling on the future of the grid, and specifically the case for grid investment. How powerful is the consumer in deciding the future of the grid in the United States?

Linda Blair: Well, ultimately, the consumer is the answer. I mean the consumer is who we serve. We are an industry that serves the public. We serve the common good. And our study, for example, really just highlighted the fact that I think there is common agreement that the transmission infrastructure is vitally linked to our economic well-being in the future. And people recognize that the infrastructure, it's aged, it's old, it's tired, and they recognize that this country has a need for investment in the infrastructure, and that investment is tied to our economic health and well-being as we move forward.

Monica Trauzzi: Do you see some of the changes and challenges facing the electric power sector as disruptive as some sort of in the utility sector have stated?

Linda Blair: Well, clear, anytime you have change, change is always disruptive, but it doesn't mean that it's bad. This business, the utility infrastructure, was built 100 years ago. We have 550 owners of the high-voltage transmission grid in this country, for example, and anytime you change it is disruptive to what you know, who you are, what it means for your future, what it means for your profits, how you're going to serve your customers. So, yeah, change is always disruptive, but change isn't always bad. And I think the forefront of where we're on today is really about bringing competition, bring enhanced benefits to customers, and that's really what we should be focused on. And as an industry, we shouldn't run from that because it's change. We should figure out how to embrace it and how do better serve our customers.

Monica Trauzzi: And transmission tends to be sort of that less tangible missing piece that sometimes gets pushed aside in the discussion and the debate that we see around the country.

Linda Blair: Yeah, sure.

Monica Trauzzi: How would you qualify the state of transmission, and what are you sort of pitching to improve and move forward on the modernization of the transmission?

Linda Blair: Sure. Yeah, ITC, we have long said that, obviously, we have an aged infrastructure. It requires substantial need for investment. The future energy needs of this country, the transmission grid that we have today cannot meet our future energy needs. And so we have to know and understand where we're going in the future, whether we'll get it or not. But obviously any type of energy policy, long-term goals, long-term vision that we as an industry can plan to. We're an industry we have very long-lived assets. We put infrastructure in the ground. It's around for 50 years 100 years. We want to be in the position where we sort of measure twice, cut once. We want to get it right because ultimately it's our customers that we're serving and we have to find ways to deliver the greatest benefits and value to our customers, and that's what we're focused on is how do we improve the reliability of the transmission grid? How do we eliminate the inherent congestion on the transmission grid? How do we interconnect new sources of generation that we're going to be required to do in the future? And we want to do that in the most effective, efficient way, 'cause that's what's going to drive value to customers.

Monica Trauzzi: And FERC has addressed a lot of this through Order 1000, trying to create sort of a clear process for managing the challenges facing the grid, and the creation of new power lines. Does it provide the right amount of certainty?

Linda Blair: Yeah, I wouldn't say. I think certainly Order 1000 is a change agent, and so change obviously doesn't necessarily bring certainty. I think what we really applaud FERC's effort is really to advance and promote regional planning of the transmission grid. We have to get to a point where we're planning the transmission grid on a regional basis. We have to find ways where we are identifying the beneficiaries of those investments and who pays for them. I think FERC took a big step through that effort. I think the one place that we all have a question mark on, but certainly I think it provides opportunity, is on the elimination of the right of first refusal. In other words, we're introducing competition into who gets to build these regional transmission projects. And, ultimately, at the end of the day, the consumer is the one who's going to benefit from that. And we at ITC, while we can't predict what the future looks like, we clearly see that as a huge opportunity for our company, but more importantly, really a great opportunity for customers.

Monica Trauzzi: So the report talks about the need for flexibility in the grid. What does that mean for FERC and regulators and how much power they should continue to have in the future?

Linda Blair: Well, I think when we think about flexibility in the transmission infrastructure, we think about it in the context of, "Do you have a robust regional infrastructure that has the ability to sort of flex and to accommodate the changing needs of the generation sources?" The generation sources of today will not be the generation sources 40 years from now. Whether it's through plant retirements, whether it's through EPA regulations, whether it's the drive through RPS standards and building more renewables, we have to have a transmission grid that accommodate those new sources wherever they interconnect, and most importantly, a transmission grid that can deliver that energy reliably to the customer.

Monica Trauzzi: So who's investing in transmission right now, and where are the biggest gaps?

Linda Blair: I think right now, if you were to look on an industrywide basis, you would see a lot of utilities are investing in transmission right now. I think that is a function of a number of different factors. I think primarily there's really no generation build going on in this country, and so a lot of utilities have turned to transmission as a place to invest their capital and grow their business. So a lot of utilities are investing. We also have new market entrants. We have other developers who see the opportunity to invest in transmission, and they, too, have entered the space. Whether it be on a regulated basis, whether it be more at the merchant projects, offshore-type projects, there's a lot of new entrants because fundamentally, there is a significant need for investment in transmission infrastructure, and we have got to continue to stay focused on that because, obviously, we have to be able to meet the needs of the future and meet the needs of our customers.

Monica Trauzzi: Recently, a planned transaction between Entergy and ITC failed because the Mississippi Public Service Commission rejected the deal. What does the failure of that transaction mean for future transmission investments by ITC?

Linda Blair: Yeah, I don't think that transaction in and of itself has any specific impact. We have been very successful in growing our business through other acquisitions. We've been very successful on the development and partnership front. And, again, I we will be very successful in sort of the post-ROFR environment. So that transaction certainly isn't an impediment or a roadblock for our future opportunities. We are very well positioned, well-poised for future growth. Certainly, I think it sort of exemplifies I think some of the hurdles that continue in this business, and that is that we have 550 transmission owners in this country with federal regulation, and 50 state regulations on top of that. And so we have a balkanized system, and I think if we ever get to a point where we have a regional transmission grid, we're going to have to continue to find ways where we have common rules and regulations as opposed to multiple different regulations.

Monica Trauzzi: So what were the lessons learned in that transaction that you might take to future transactions in terms of the impact on ratepayers specifically?

Linda Blair: Yeah, I think as it relates to impact on ratepayers, I think we need to do a better job, not just we, "ITC," but the industry. We have to do much better at articulating the value of the product that we provide to the customer. So often, people only focus on the one side of the equation, and that's the cost side. What's the return on equity? What's the capital structure? Really, the focus needs to be on the whole equation, and that is what's the value? What's the benefits that you're bringing for customers? Ion our business, in ITC's ten-year history, we have a very, very strong track record of how we have bought systems that have underperformed and we have made the needed investments to drive the reliability improvements to eliminate the congestions, and all of those things save customers dollars. So we need to do a better job, find ways at highlighting and telling that story about what the whole value equation is for customers.

Monica Trauzzi: All right, Linda. We'll end it right there. Thank you so much for coming on the show.

Linda Blair: Great. Thank you for having me. Appreciate it.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.